AD DEDUCTIBILITY IS BACK IN PLAY;INDUSTRY REPS SHUDDER AS HOUSE GOP RENEWS HUNT FOR MORE BUDGET
REVENUE

WASHINGTON-Efforts to reduce the deductibility of advertising may not be dead in Congress after all.

Nearly four months after advertising, publishing and marketer groups passed what they thought was the biggest danger for a reduction in deductibility when President Clinton failed to mention any proposal in his State of the Union, House Republicans last week moved to consider the proposals anyway.

"I think this is one of the most serious threats to the deduction of advertising costs we've seen and the media and ad industries should treat this as a very serious proposal," said Jim Davidson, Washington representative for the Advertising Tax Coalition, representing several industry groups.

Most worrisome was the seriousness of the attention proposals to make ad spending only 80% or 90% deductible were getting late in the budget process as House Republicans struggled to come up with a plan to both lower the Federal deficit and offer income tax relief.

"The Republican majority and the Budget Committee are coming face to face with the challenge of filling their contract obligations and having to find new sources of revenue," said Hal Shoup, exec VP of the American Association of Advertising Agencies. "It's exactly the scenario that we feared would put ad deductibility back on table, and it is."

Several coalition members said they had heard one proposal was presented to members of the House Budget Committee as recently as May 2. While it found few supporters and was pulled, the coalition members said it was clear the removal was "temporary" with the strong impression it would be considered later.

House Republicans holding a retreat in Leesburg, Va., later in the week were hearing related proposals, according to the ad groups, though there was no immediate confirmation from the Republicans at the meeting.

The advertising groups say three proposals seem to be on the table:

In one, advertising expenses now fully deductible each year would become 80% deductible in the year they took place with the other 20% of cost having to be amortized over four years, estimated to bring in an additional $18.4 billion in taxes.

Another plan would do the same thing, but make deductibility 90%, spreading the remaining 10% in expenses over four years.

A third option is limiting deductibility to 80% or 90% with no chance of ever recouping the additional spending.

The groups are especially worried that the latter option's guarantee of increased revenue each year may seem especially appealing vs. the one-time boost of the other plans.

"We are not hitting the panic button yet. On the other hand, we are taking it extremely seriously," said Dan Jaffee, exec VP of the Association of National Advertisers. "We've sent out an action alert. The fact is that advertising is in play in Congress."

The advertising groups aren't the only people seeing action coming.

Labor Secretary Robert Reich, a proponent of cuts in corporate welfare, which he calls "Aid to Dependent Corporations," last week told the Society of American Business Editors & Writers that he expects major debates on corporate welfare to come quickly.

"I believe there are very good chances for a heated debate over corporate welfare in the next month or two partly because over the last month or two [a number of groups] have provided their candidates for cuts."

Mr. Reich said he believes that cuts in the deductibility of advertising should be among the targets examined.